This is the ninth episode in our special Q & A Series. We look at the steps to go through from sourcing a BMV (below market value) deal to getting your sourcing fee paid
Mark: It would be nice to know the steps from getting a BMV deal, or getting a BMV deal to finally getting paid.
So what I thought for this would be quite straightforward is just to literally go through the steps and just sort of explain a little bit more. So needless to say, viewing, I think that's obvious.
I don't need to tell you what it is. Once we've been to the viewing and we have worked out our due diligence and we have decided what we're going to offer. We will send an offer letter. So that offer letter will stipulate key bits of information such as the price, obviously. But then any other terms, anything that needs to be included with the sale if there's if there's been any discussions of the property that maybe needed extra thing delving in. And so remember this is specifically for a purchase BMV deal. And the process is different for other investments strategy types. But for a BMV deal, you send your offer letter out which stipulates the terms of the offer. You know, and what you can do in order to proceed with the offer. Then we issue what's called a Memorandum of Sale.
So the easiest way to explain a Memorandum of Sale to those of you who are not aware, of one is it's the equivalent for Heads of Terms for another deal. So it's a it's a document that stipulates that terms under which the sale has been agreed. Any additional items that need to be considered such as pictures of fittings, carpets, light shades and garage contents. I mean anything else that's additional to the obvious shell of the property needs to go on a Memorandum of Sale. The Memorandum of Sale will also include the buyer's details, the seller’s details, the buyer’s solicitor's details and the seller's solicitor details and the property address, the price that has been agreed. And like I say any other terms that have been agreed.
So once that Memorandum of Sale has been sent, you send that Memorandum of Sale to the seller and the buyer and you keep a copy for yourself. And then once we know that the solicitors have been instructed so whoever's each party's solicitors are, you also send a Memorandum of Sale to them.
So just again to reiterate, Memorandum of Sale will be sent to the buyer, the buyer's solicitor, the seller and the seller's solicitor. Then what we also get saying when we're dealing direct to vendors. So this is purely on a direct to vendor basis. We will issue an Option to Purchase contract which is usually for around about a minimum of 90 days. What that does is it just grants us exclusivity for the sale of that property within 90 days. And what this does, there's an added bit of security it's kind of like a lockout agreement but it's softer and it just means that it allows you, so for example if you haven't found an investor yet the option to purchase is in your name, but insure it's a assignable. And what I mean by assignable is that when you find a buyer that option contract can be transferred to the buyer. I wouldn't worry too much about that though because to be honest at that point if the sellers got a sale, you only need to just go by pass the options to purchase when the buyer has been found and just instruct solicitors.
But it just gives the seller a peace of mind and you that peace of mind that deal is secured. So when we talk about securing that deal that option to purchase contract is what secures the deal for you. And so that options to purchase contract is in. Then you instruct solicitors. So like I mentioned before send your Memorandun of Sale. And at this point this is where you would send your invoice which you have agreed with your buyer that your fee will be paid by the buyer's solicitor. Upon completion of the deal. So that's how we operate. We get our fee on completion of the sale and it is paid by the buyer's solicitor. So the buyer's solicitor should hold that fee in escrow for you for when a deal completes. It's then up to you to progress that sale through to completion so making sure that you maintain contact with the buyer, the seller, the buyer's solicitor and the sellers solicitor. And if there's anyone else involved in the meantime such as mortgage surveyors, building surveyors and anything else, just make sure that you're aware of everything that's going on at all times because that means that you're going to be able to meet any issues in about quickly but also it just gives peace of mind too.
It just gives a peace of mind to all parties that you're in control. You know what's happening. And again you can sort out any problems that may arise as they come up. And then like I say your fee is paid by the buyer's solicitor on completion of the deal. And that is the process from getting a BMV deal from offer to completion when you're direct to seller.
Brad: OK, so we got a few questions here. Andrew has asked if this is issued when solicitors have been instructed wouldn't you already have a buyer.
Mark: If what was issued?
Brad: Not sure. Andrew, can you just clarify that one in the chat box again and we'll come back to that. Cathy saying who is in the memo of sale if you don't have a buyer yet.
Mark: So that would be, the Memorandum of Sale wouldn't actually be issued until a buyer was found. So really just sort of confuse matters. The option to purchase contract, that isn't necessary if you already have a buyer, if you already have a buyer for the property. You don't really need to have the options of purchase contract the options purchase contract allows you to then go away and find a buyer for that deal. And once that buyer is found that buyer's details will go onto the Memorandun of Sale. So the Memorandum of Sale will only be the buyer's details. Your investor and your investor's solicitor.
Brad: Okay so going back to Andrew's he is saying if the memo of sale is issued when solicitors have been instructed wouldn't you already have a buyer?
Mark: Yes, absolutely. You then instruct solicitors of your own. If you have no intentions of buying that property. And so the options purchase contract really, the bullet points should just be, well, Memorandum of Sale in brackets or if you haven't already got a buyer.
Brad: Okay and then Jessica is asking I'm just reading that as they come. I've not come across an option to purchase contract before. Does that imply or does that apply to vendor agent that you're stalling buying time to find funds? Think she's saying is the option to purchase contract like is almost just an arm's length stalling method.
Brad: So the option to purchase contract as a deal sourcer is your protection for securing the deal so that no one can come along and gazump or pinch that deal from you. The reality is that if that contract was broken you would have to take the seller to court and you will find that it cost more to take that seller to court than your fee would probably have been worth in the first place.
So the reality is, it's more of a safety net for you and reassurance from the seller to you that they're giving you the exclusivity to purchase that property so you don't let them know that you haven't got a buyer as far as your seller is concerned. Really you're buying that deal. And then you need to just go and do your relevant checks. So that's the purpose of the Option to Purchase contract. It works every time for us as long as you explain it in the right way. Most property sales take between 8 and 12 weeks to complete anyway. So all this is doing is giving you the security that that seller is going to gazump your offer, accept a higher offer in those 90 days.
Brad: Okay. Presumably Cathy is asking, is the option to purchase contract done via a solicitor?
Mark: No, it's not. So we have a template that we use. And again like I mentioned because it's more of a safety net for us and that the document is a very straightforward two page document that just explains the terms of exclusivity for us only us to purchase that property within those 90 days. So. Again the big reason why if it ever did, if you ever did get gazumped it wouldn't really necessarily be enforceable in court or you would find that you spend a lot of money chasing that is because you are just getting them to sign a contract that gradnt you exclusivity. So no you wouldn't instruct solicitors. And actually the real importance here when you're securing a deal direct seller is your relationship with the seller. So just make sure that you've built a very strong report so that if anyone did come along and tried off the hire that they would come straight back to you before doing anything but that 90 day options purchase lease option in effect is what grants you the security and often, what you find is that when people sign a contract such as a 90 day contract, they will take that as a contract that they have signed.
Brad: Okay and then finally on this one, would you also have that option if the buyer was buying subjects obtaining planning permission.
Mark: Well that is slightly different so remember this is a question based on getting a BMV deal to finally getting paid. So if you are going to secure a property based on getting planning permission I would be more inclined to get that dealt with legally and get an options purchased contract drawn up by solicitors and have representation on both sides. And because you really could, by putting in a planning application you're incurring costs. And also if you haven't secured that deal your planning application is public knowledge and could end up to some would definitely come along gazumping if your planning got granted. So that would be a lot more involved in terms of legal representation. I would I would recommend.